nikkei 225 further potential push down below 16600740 resistance 1827212016

Daily Outlook, Friday 19 Aug 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225) has broken below the 16600 medium-tem pivotal support which has invalidated our preferred medium-term (1 to 3 weeks) bullish view and also damaged the medium-term uptrend in place since 24 June 2016 low.

Please click on this link for a recap on our previous daily short-term technical outlook/strategy.

Key elements

• Based on the Elliot Wave Principal and fractal analysis, the Index may have completed an impulsive bullish wave structure/cycle of a primary degree wave (1) in place since 24 June 2016 low that consists of a set of intermediate degree (lower time frame) 5 waves labelled as 1/, 2/, 3/, 4/ and 5/. The potential top of the bullish primary degree wave (1) stands at 16940 which is defined by 1 time of the distance of wave 1/ projected from the low of wave4/ (see 4 hour chart).  Therefore, the current decline of the Index is considered to be part of a primary degree bearish corrective wave (2) that consists of a/, b/ and c/ intermediate degree (lower time frame). On a side note, we are not ultra-bearish at this juncture as we do not expect the major support at 14835 to be broken.
• The duration of the aforementioned potential primary degree bearish corrective wave (2) can last for around another week as the current down move from this Monday, 15 August high of 16944 is likely to be only an intermediate degree (lower time frame) wave a/ of the primary degree bearish corrective wave (2). The potential end target of wave a/ rests at 16300 based on a measurement derived from a Fibonacci cluster (0.618 retracement from 04 August 2016 low + 1.00 projection from 15 August 2016 high).
• The aforementioned potential bearish wave a/ target of 16300 also confluences with the former minor swing low area of 29 July 2016 and the recent minor swing high area of 05 August 2016.
• The intermediate resistance  now stands at 16600 which is defined by the former support from 16 August 2016 minor swing low and a descending trendline in place since 15 August 2016 high (depicted in pink) (see 1 hour chart).
• The key short-term pivotal resistance stands at 16740 which is defined by the minor double tops of 17 August/18 August 2016 and close to the 61.8% Fibonacci retracement of the recent decline from 15 August 2016 high to today’s current intraday low of 16451.
• The hourly (short-term) Stochastic oscillator is now coming close to an extreme oversold level which highlights the risk of a minor rebound at this juncture as the short-term decline in place since yesterday high of 16743 is getting overstretched.

Key levels (1 to 3 days)

Intermediate resistance: 16600

Pivot (key resistance): 16740

Support: 16300

Next resistance: 16940

Conclusion

Medium-term uptrend from 24 June 2016 has been damaged, potential multi-week corrective decline in progress. The Index may see a minor push up first to retest the 16600 intermediate resistance with a maximum limit set at the 16740 daily short-term pivotal resistance before another potential down move occurs to target the next support at 16300.

However, a clearance above the 16740 short-term pivotal resistance is likely to negate the bearish tone for a further push up to test the medium-term range top of 16940.

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